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Industry Report - Telecommunications - October 2010

A Company and Industry Analysis October 2010

CONTENTS

Current Environment

• Sector Overview• Sector Performance• Leading Companies• Mergers and Acquisitions

Industry Profile• Industry Size and Value• Key Telecom Product Areas• Sector Investment• Policy and Regulatory

Environment

Market Trends and Outlook• Mobile Technology Continues

to Evolve• Gradual Uptake of Mobile

VoIP• European Mobile Apps Market

Poised for Growth • Market Outlook

Country Profiles• Finland• France• Germany• Italy• Sweden• United Kingdom

Currency Conversion TableKey References

The Scope of this Report

Comparative Data

Reports Coverage

Current Environment — Key Points

• Europe’s telecommunications markets survived the recession and, after nearly 24 months of slowdown, business once again regained momentum over the last six months, with sales picking up.

• With the international markets on the upswing and European governments looking to upgrade the speed of their broadband networks, the market saw an exceptional rise in demand for mobile and broadband subscriptions as well as the emergence of aggressive competition.

• High-quality multimedia mobiles and smartphones with internet access like Apple’s iPhone remained highly popular.

• European telecoms stocks rebounded modestly over the last six months, with the STOXX Europe 600 Telecommunications Index (SXKP) up 4.3% from 247.46 points on January 29 to 258.84 in July 27, 2010.

• The European telecoms sector was abuzz with M&A activity over the past six months, with more and more companies entering the market in order to seek new growth areas to counter more intense competition.

Industry Profile — Key Points

• The telecommunications sector is one of Europe’s most important, with an annual turnover of around €290 billion (US$385.18 billion) and providing around 4% of jobs in the EU.

• The take up rate for fixed broadband internet is gradually slowing down as consumer preferences shift to mobile broadband. According to the European Commission’s (EC) Information Society and Media telecoms report, the average broadband penetration rate in Europe was about 24% in 2009, up 2.4 percentage points from 21.6% in July 2008.

• Throughout 2009 and into 2010, European telecom operators continued to invest in upgrading their infrastructure, with the help of loans from the European Investment Bank.

• In January 2010, the EU established a new telecoms regulator, the Body of European Regulators for Electronic Communications (BEREC).

Market Trends and Outlook — Key Points

• The year 2010 will be a groundbreaking year for Europe, with many operators waiting to be granted licenses to launch the fourth generation (4G)/LTE networks.

• Mobile VoIP in the European telecoms industry is unlikely to achieve mass-market uptake by the end of this year. However, as network quality improves, selective use of mobile VoIP could start to affect operators’ revenue from higher tariff services such as international calls and voice roaming.

• The downloadable applications market continues to grow in Europe, with millions of consumers spending on applications for their smartphones. The market may slow eventually, however, as more apps stores take off and competition intensifies.

• The telecoms market in Europe showed renewed vigor in 2010, a trend that is likely to continue to at least 2012.

• The mobile broadband market is expected to be one of the hottest areas of growth, particularly at the expense of the fixed-line market.

• With new regulatory reforms at the European level having introduced further challenges for many service providers, the industry will look for innovative ways to expand and boost revenues.

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Copyright Statement

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Current Environment

Europe’s telecom markets survived the recession and, after nearly 24 months of slowdown, business once again regained momentum over the last six months, with sales picking up. With the international markets on the upswing and European governments looking to upgrade the speed of their broadband networks, the market saw an exceptional rise in demand for mobile and broadband subscriptions as well as the emergence of aggressive competition between service providers in the past six months of 2010.

The demand for mobile data services has never been as high. The booming mobile broadband and rising data usage provided an extra boost for Europe’s telecom and internet providers — mostly under pressure from falling margins in the traditional fixed-line telephony and internet business line. According to the European Information Technology Observatory (EITO), the mobile data services market grew by 10% in 2009. In 2010, the mobile services market is likely to experience similar growth levels. The continued growth of Europe’s mobile data services market was driven by the greater use of facilities offered by mobile broadband internet. According to EITO, the mobile data services segment in the UK achieved the largest market volume with some €5.6 billion (US$7.44 billion) reported in 2009. Germany was in second place with €5.2 billion (US$6.91 billion), followed by Italy with just under €5.2 billion (US$6.91 billion) and France with €4.0 billion (US$5.31 billion). In the fifth largest market, Spain, mobile data services were worth €3.2 billion (US$4.25 billion). Mobile data services in Italy grew 12.4% in 2009, the highest growth rate reported so far by the country’s telecoms industry. The sales generated from mobile internet access fees and mobile email surpassed revenues generated from text and multimedia message services.

There are currently more than 640 million mobile phone subscriptions in the EU, more than the region’s inhabitants. High-quality multimedia mobiles and smartphones with internet access like Apple’s (NASDAQ: AAPL) iPhone have become enormously popular. The craze has driven a jump in registrations for Universal Mobile Telecommunications Systems (UMTS), also popularly known as 3G accounts, throughout the region. Based on previous data from

EITO, Mergent believes that current registration of UMTS accounts in the EU could be close to 200 million. In the UK alone, roughly two thirds of the around 81 million mobile phone accounts are UMTS-capable. Meanwhile in Italy, about 33%, or more than 30 million, of the country’s mobile phones subscriptions are UTMS-capable.

Sector Performance

European telecom stocks, which fell badly early in the year, made a comeback in the second quarter of 2010, as Nordic telecom operators reaped the benefits of a surge in mobile data usage. On average, the STOXX Europe 600 Telecommunications Index (SXKP) rose by 4.3% in the past six months to July 27, 2010.

The share price index started the six-month period at 247.46 points in January and fell to its period low of 224.35 points in May as concerns over rising capital expenditure, stricter regulation and slow economic growth ignited investors’ fears. But booming mobile broadband and data usage in the Northern European market compensated for shrinking sales, especially as operators moved away from unlimited low costs “all-you-can-use” data plans. The share price index rose in the remaining months and ended the period at its high of 258.84 points in July 27.

Leading the market was Norwegian telecoms operator Telenor ASA (OSL: TEL) (+21.94%) and Sweden’s Tele2 AB (SE: TEL2 B) (+21.64%). Meanwhile, trailing the SXKP were Western Europe’s Cable & Wireless Communications Plc (LSE: CWC) (-57.27%) and Telecom Italia SpA (MI: TIT) (-10.09%). Concerns over the widening of some troubling issues like a shrinking revenue base and a lack of investment transparency weighed heavily on the telecoms sector in Western Europe which, as a result, hurt overall institutional investor sentiment.

Leading Companies

Deutsche Telekom AG (FSE: FTE)

Europe’s biggest telecoms group Deutsche Telekom AG reported an 8.8% fall in second quarter 2010 profit to €475

Sector Overview



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Current Environment

Table 2: Share Price Performances of SXKP Index Components

Company NameCountry

CodeTicker

Share Price on

Jan 29 2010

Share Price on

Jul 27 2010

Rise /

Fall %

Belgacom BE BRU: BELG €24.83 €27.59 11.11BT Group GB LSE: BT.A £137.60 £141.50 2.83Cable & Wireless Communication GB LSE: CWC £142.40 £60.85 -57.27Cable & Wireless Worldwide* GB LSE: CW N/A £68.05 —Deutsche Telekom DE FSE: DTE €9.40 €10.28 9.36Elisa Corporation FI HEX: ELI1V €15.79 €15.24 -3.48France Télécom FR PAR: FTE €16.62 €15.11 -9.09Inmarsat GB LSE: ISAT £683.00 £753.00 10.25KPN NL AMS: KPN €11.99 €11.12 -7.26Mobistar BE BRU: MOBB €45.52 €44.38 -2.5OTE GR ASE: HTO N/A €6.20 —Portugal Telecom PT LIS: PTS €7.50 €8.30 10.67Swisscom CH SWX: SCMN CHF387.70 CHF393.20 1.42Tele2 AB SE SE: TEL2 B SEK104.90 SEK127.60 21.64Telecom Italia IT MI: TIT €1.09 €0.98 -10.09Telefónica ES BM: TEF €17.36 €16.89 -2.71Telekom Austria AT WBAG: TKA €9.98 €9.15 -8.32Telenor NO OSL: TEL NOK77.50 NOK94.50 21.94TeliaSonera SE SE: TLSN SEK49.89 SEK53.50 7.24Vodafone Group GB LSE: VOD £134.55 £150.20 11.63

Source: Mergent analysis, 2010

Table 1: The Movement of the STOXX Europe 600 Telecommunications Index (SXKP) in the Six Months from January 29 to July 27, 2010

Source: Mergent analysis, 2010

(%)

0.08

0

0.04

-0.04

-0.08

Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10

0.06

-0.02

0.02

-0.06

-0.1



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Current Environment

million (US$631 million) from €521 million (US$692 million) in the same period the previous year on costs related to the consolidation of the company’s British offshoot T-Mobile, with France Télécom’s UK business. Also due to falling sales from fixed-line telephony and the termination of subscriptions, Deutsche Telekom’s total European revenues dropped 20.4% from last year to €4.03 billion (US$5.35 billion) in the second quarter of 2010.

In the meantime, the group’s total revenues from its home operations in Germany fell 0.4% to €6.20 billion (US$8.23 billion), and net revenues fell 0.8% to €5.81 billion (US$7.72 billion) during the quarter, as a 5.5% rise in mobile communications revenues were offset by 2.9% drop in fixed network revenues in the quarter. In the US, Deutsche Telekom’s T-Mobile USA reported revenue for the second quarter of 2010 up 6.9% to €4.19 billion (US$5.57 billion) from last year’s €3.92 billion (US$5.21 billion) driven by strong growth in the mobile data business. During the quarter, T-Mobile USA saw the number of third-generation smartphones held by its customers triple to 6.5 million from the previous year.

Vodafone Group Plc (LSE: VOD)

Vodafone reported a rise in group revenue by 4.8% to £11.3 billion (US$18.06 billion) in the second quarter of 2010, driven mainly by strong service revenue growth across subsidiaries outside Europe, notably in South Africa, India and Turkey. In Europe, data revenue growth was up 23.3% due to stronger smartphone and mobile connectivity sales; however, service revenue fell 4.2% to £6.8 billion (US$10.87 billion) in the second quarter of 2010 as a result of prolonged weakness across most of Vodafone’s Western and Central European branches.

Germany and the UK were the only Western European countries that contributed to Vodafone’s third successive quarterly improvement in organic service revenues trends, with each reporting improved data revenue growth rates from smartphones and data plans and, in Germany, on netbooks. Meanwhile, operations in Spain and Italy responded poorly to significant price competition in an increasingly competitive market environment.

France Télécom SA (PAR: FTE)

France Télécom continued to underperform its peers due to intense competition in its key home market, the group’s

limited ability to cut costs and due to promises to French employees and its acquisition ambitions. In the first half of 2010, the group posted consolidated revenues down 2.2% to €22.1 billion (US$29.35 billion) from €22.4 billion (US$29.75 billion) in the same period last year due partly to the impact of regulation, in particular the reduction in fees that operators charge each other to connect calls.

Despite increased competition and regulatory setbacks, France Télécom recorded growth in its customer base by 3.8% to 182 million customers in the first half of 2010. Of that, there was a 6.6% growth in the mobile customer base to 123.1 million customers, driven by Africa and the Middle East with a combined total of 34.0 million customers. Additionally, the number of France Télécom’s ADSL broadband subscribers grew 2.2% to 13.2 million customers, while its digital TV subscribers rose 43% to 3.6 million customers at 30 June 2010.

Telefónica SA (BM: TEF)

Telefónica’s second quarter 2010 net profit rose 16% to €2.12 billion (US$2.82 billion) as revenue growth in its Latin American business compensated for a weaker Spanish market. The Spanish second largest telecom giant by market value also reported net profit during the quarter rose by 8% to €3.78 billion (US$5.02 billion), compared with €3.5 billion (US$4.65 billion) in the same period the previous year.

Telefónica’s sales across Latin America were up more than 10% to €12 billion (US$15.94 billion) in the first half of 2010, due particularly to strong performance in both Colombia and Brazil. In Spain, where high unemployment, tax rises and public sector wage cuts battered consumer sentiment, Telefónica reported sales decline 3.2% to €4.69 billion (US$6.22 billion). Telefónica Europe, which includes O2 of UK, increased its core earnings by 11% to €2 billion (US$2.66 billion) in the first half of 2010 due to the rapid spread of smartphones across the UK and continental Europe.

Mergers and Acquisitions

The level of M&A activity in the European telecoms sector continued to be high over the past six months, with more and more companies entering the fray in order to seek new growth areas to counter more intense competition. Some analysts suggested that the telecommunications market



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Current Environment

had surpassed financial services as the busiest market for M&A.

The market was buoyed by news that two leading European telco giants — Cable & Wireless and Royal KPN NV (AMS: KPN) — were battling over the acquisition of the US voice-over-internet carrier, iBasis. After a bitter fight, the Dutch service provider KPN finally won the bid in December 2009, giving it the right to acquire the Massachusetts-based company for US$93.3 million in cash. With the merger of iBasis’ wholesale voice business into KPN, the company instantly enhanced its presence in the international wholesale voice market, second only to Verizon Communications Inc (NYSE: VZ) and AT&T Inc (NYSE: T).

Cable & Wireless later de-merged its Cable & Wireless Worldwide unit in March 2010 for US$3.6 billion in an effort to mitigate the risks associated with the international business unit’s disappointing performance. The telco felt the de-merger was necessary to drive further growth and value for shareholders by enabling both businesses to pursue their strategies independently.

Spain’s Telefónica meanwhile proposed to take control of Brazil’s biggest cell network operator Vivo SA (BVSPA: VIVO) by buying out Portugal Telecom’s stake in the investment vehicle they shared for US$9.7 billion. Telefónica’s first bid of €5.7 billion (US$7.57 billion) for Portugal Telecom’s stake in Vivo was rejected by the Portuguese carrier despite an eye-watering 140% premium — evidence that the price of access to the remaining growth areas of a maturing industry had reached a new level.

Spurned, Telefónica lifted its offer to €7.5 billion (US$9.96 billion) and ended the month-long takeover saga in July. Telefónica will expand its presence in one of the fastest growing emerging market economies and save billions of dollars from the combination of its ailing fixed-line business with a buoyant wireless venture.

In July, Tele2 Netherlands Holding, a subsidiary of Tele2 Sverige AB, acquired Dutch ISP BBned from Telecom Italia for €50 million (US$66 million). BBNed is a fixed telecoms provider that is active in the consumer, business and wholesale markets and is also known for its BBeyond brand. The acquisition demonstrated Tele2’s ambition to build its presence, particularly throughout the European telecom markets.



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Industry Profile

The telecommunications sector is one of Europe’s most important technology sectors, with an annual turnover of around €290 billion (US$385.18 billion) and providing around 4% of the jobs in the European Union (EU). Liberalization of the EU telecoms sector, initiated in the mid 1980s, has brought significant benefits for consumers, particularly businesses. The prices charged by the telecoms sector are a significant cost of doing business in Europe and, with the price of telecoms services falling on average by around 30% in the past decade, so have business costs.

In addition, the introduction of competition has raised the standard of services, making former monopolies much more respondent to the needs of consumers. As a result of the sector’s competitiveness, consumers pay less while getting better services. In the EU, average mobile phone bills have fallen from €21.48 (US$28.53) to €19.49 (US$25.89) per month in 2008, with 75% of European consumers now having internet connections of 2Mbps and above (speeds allowing, for example, TV over the internet), all thanks to EU reforms.

Mobile services have enjoyed strong growth on the continent since the 1980s, underpinned by substantial network and service investments. Most of Europe’s mobile markets are saturated, with only France in early 2010 having less than 100% mobile penetration. With total revenues of €178 billion (US$236.42 billion) in 2009, mobile now ranks as one of Europe’s most important industries, having overtaken the fixed-line sector.

Continuing growth in the 3G sector, as subscribers migrate from Global System for Mobile Communications (GSM) networks, has contributed to a massive increase in mobile use among consumers. On average, Europeans now make 126 minutes of calls from their mobiles and send 45 mobile messages every month (per head of population). According to GSM Association (GSMA), the body that represents the worldwide mobile communications industry, the mobile sector represents 1.3% of the EU’s gross value-added, 1.2% of the EU’s GDP, and employing over 600,000 people.

The take up of broadband internet continues to grow in Europe. Although still emerging, the adoption of mobile data services such as mobile broadband is accelerating due to the continuing momentum of the mobile broadband

sector as mobile operators upgrade their networks to support higher capacity technologies. The broadband sector continues to invest in next-generation infrastructure, providing a strong economic stimulus.

Several European operators have launched Long Term Evolution (LTE) services, enabling mobile broadband to become a legitimate replacement for fixed-line broadband in terms of data rates available. Denmark and the Netherlands remain world leaders in broadband take up, with nearly 40% population penetration, while Sweden, Luxembourg and Finland exceed the 30% mark. Germany, France, United Kingdom, Belgium, Estonia and Malta exceed the 25% mark. All member states exceed the 10% penetration rate.

Key Telecom Product Areas

Mobile Cellular and Broadband

The mobile cellular and broadband revolution is unfolding fast. The uptake and popularity of mobile cellular and broadband services is due to the emergence of smartphones, underpinned by High Speed Packet Access (HSPA) and HSPA+ Mobile Broadband technology. The influx of smartphones coming onto the market is creating huge traffic growth. For example, 40% of Telefónica Europe Plc’s O2 data traffic in the UK comes from the smartphone market. This pressure on mobile networks is becoming well documented, with consumers becoming hungrier for online experiences wherever they are.

Fixed Broadband

With more than 11 million new fixed lines laid last year, the take up of broadband internet continues to grow in Europe, albeit at a slower rate as demand rapidly shifts to mobile broadband. On July 1, 2009, there were around 120 million fixed broadband lines in the EU. According to the European Commission’s (EC) Information Society and Media telecoms report, the average broadband penetration rate in Europe was about 24% in 2009, up from 21.6% in July 2008. Around 80% of fixed broadband lines in the EU now offer speeds above 2Mbps, but only 18% of them are above 10Mbps. While speeds of at least 2Mbps are sufficient for basic web applications, they are not sufficient

Industry Size and Value



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Industry Profile

for more advanced applications like TV on demand, which explains the poor demand for this service.

Fixed-line Telephone

The march of mobile cellular is forcing fixed-line telephone business into the dumps, with market liberalization in the EU adding to the pain being felt at traditional phone monopolies. Telecom Italia is the most heavily indebted of Europe’s former fixed-line phone monopolies, and it has a limited investment plan in fiber-based broadband infrastructure. Presently the number of call minutes originating from mobile phones has already surpassed those from fixed-line connections. The reason for this dwindling market is simple — the lack of mobility. Many people, especially the young, far prefer the instant accessibility of mobile cellular than the immobile fixed-line telephone lines.

Sector Investment

Competition is a crucial driver of European telecoms investment and innovation. In the electronic communications segment, investing in new technologies, infrastructure and services is vital if companies are to cut costs and seize opportunities created by the convergence of digital networks, devices and content. In July 2009, the EC announced it would free spectrum from analogue TV signals around Europe, in what is known as the digital dividend, to allow for new uses, including mobile technologies such as LTE. Due to the success of mobile broadband in generating revenues for mobile operators over the past three years, it is expected that mobile operators will be given a chance to invest in this extra spectrum to upgrade their mobile technologies to LTE.

Since the EC reserved the 800 MHz band for such uses, a number of governments, including those in Denmark, France, Germany, Sweden and the UK, have confirmed their intentions to allow the use of this band for mobile services. Due to increasing acceptance across Europe and beyond of the use of a portion of the digital band for mobile, the next few years will see many auctions. Countries such as Sweden and the UK have already made plans to sell off spectrum this year, allowing mobile operators time to decide on the amount to be invested in the spectrum.

Throughout 2009 and into 2010, European telecom operators continued to invest in upgrading their infrastructure. In June 2009, the European Investment Bank (EIB) loaned €115 million (US$153 million) to Mobile TeleSystems OJSC

(RTS: MTSS) for the upgrading and further development of mobile networks to improve the quality and accessibility of broadband services in the Russian Federation. This was the first EIB loan supporting a telecoms project under the EIB’s mandate covering financing in Russia, Eastern Europe and the Southern Caucasus.

The project, jointly financed by the EIB, the European Bank for Reconstruction and Development and the Nordic Investment Bank, focuses on the rollout of 3G/UMTS-based mobile broadband services in Russia. It will cover the purchase and installation of equipment and software licenses for UMTS-based 3G access and core network. This will facilitate efficient communications through improved access to internet, multimedia and telecom services, thus contributing to greater connectivity and economic growth in Russia.

Another telecom operator receiving EIB loans again was France Télécom. On top of the €300 million (US$398 million) already loaned in June 2009 to finance broadband investment for its Spanish business unit Orange, in January 2010. It received a €200 million (US$266 million) loan from the EIB. The new loan will enable the operator to further develop its fixed-line and cellular services in line with France Télécom’s Orange 2012 strategy for Spain. It will use the funds to modernize and integrate its 3G high-speed cellular network and the fixed-line infrastructure it uses to provide high-speed internet.

Policy and Regulatory Environment

In January 2010, the EU established a new telecoms regulator, the Body of European Regulators for Electronic Communications (BEREC). BEREC comprises the heads of the 27 national telecoms regulators, assisted by an office that provides the necessary professional and administrative support. Most decisions will be taken by a two thirds majority and by a simple majority when BEREC gives opinions in the context of the EC’s analysis of measures notified to the commission by national regulators.

Generally, BEREC will hand down important expert opinions on the functioning of the telecoms market in the EU. With 12 fixed and ten mobile telecoms companies offering services in many other EU member states, and hundreds of service providers operating across borders, BEREC’s task is to help ensure fair competition and to strengthen the single telecoms market and consistent regulation across Europe. BEREC replaces the European Regulators Group, a loose grouping of national regulators



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Industry Profile

that operated based on consensus alone and was not integrated into the EU’s regulatory process.

A new generation of mobile services in Europe is now possible with the publication of new measures that allow 3G phones to use GSM frequencies. This follows the European Parliament and Council of Ministers agreement, in July 2009, to modernize relevant European legislation — the GSM Directive — on the use of the radio spectrum needed for mobile services. These measures open the GSM radio spectrum band to more advanced wireless communication devices. They have become EU law and must now be transposed in all 27 EU member states.

The new measures will make it easier to adapt spectrum allocation in the 900 MHz frequency band to allow even newer 4G high-speed broadband technologies to be deployed. Consumers’ existing handsets will continue to work without problems, but they can also use new technologies to access high-speed broadband services. The reformed rules are likely to have a positive economic effect on the sector and promote the take-up of new wireless services, thanks to reductions in network costs resulting from the use of lower frequency bands.

In an attempt to prevent illegal downloading of films and music, lawmakers and EU ministers have agreed to allow law enforcement agencies to cut off the connections of internet users caught doing so through a new telecoms reform package. A committee made up of EU government representatives, members of the European Parliament and the EC adjusted the proposed bill, which had initially been sent back by the EU lawmakers in May 2009, amid concerns that the bill would not adequately protect the rights of internet users. The telecoms package has since then been the subject of debate between Parliament and the Council. The rejection came after members of the European Parliament and consumer groups disagreed with the anti-piracy bill, as it suggested that the internet connections of users of peer-to-peer services could be cut without the prior intervention of judicial authorities.

The new bill states “a prior, fair and impartial procedure shall be guaranteed, including the right to be heard of the person or persons concerned, subject to the need for appropriate conditions and procedural arrangements in duly substantiated cases of urgency in conformity with European Convention for the Protection of Human Rights and Fundamental Freedoms”. It also guarantees there will be a right to an effective and timely judicial review. The proposed reform is supposed to improve consumers’

contractual rights and create a pan-EU supervisory body to improve the application of the 27-nation bloc’s telecoms rules so no operator is shielded from competition.



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Market Trends & Outlook

The year 2010 will be a groundbreaking year for Europe, with many operators waiting to be granted licenses to launch the fourth generation (4G)/LTE networks. The EU, which has been supportive in furthering the cause of new technology, pumped in €18 million (US$24 million) in January into research that will underpin next generation 4G/LTE Advanced mobile networks. Between 2004 and 2007, the EU supported research into the optimization and standardization of LTE (the WINNER I and II projects, run by a consortium of 41 leading European companies and universities) with €25 million (US$33 million). This initially led to the development of the first concept for a LTE-based network infrastructure.

TeliaSonera was the first mobile operator to launch 4G/LTE in Europe, with its 4G city network delivered by Sony Ericsson in Stockholm and Huawei for Oslo in December 2009. Meanwhile, in January, US-based Clearwire Corp (NYSE: CLWR) launched its first 4G/Worldwide Interoperability for Microwave Access (WiMax) wireless network in Europe in Malaga, Spain, to cover the metropolitan area of nearly 600,000 people. The deployment of LTE technology in Europe is, however, is set to challenge the existence of WiMax, which is struggling to provide 6Mb/sec, despite officially being a 4G technology.

Trials of first-generation LTE technology, which is expected to deliver download speeds of up to 100Mbps (possibly more) and uploads of up to 50Mbps, are currently underway in Finland, Germany, Norway, Spain, Sweden and the UK. UK mobile operator O2 is running trials with Huawei, in a bid to choose between WiMax and LTE Advance. Demonstrations of LTE Advance technology by O2’s parent company Telefónica in partnership with Nokia Siemens Networks using LTE terminals is also focusing on download times and the video image quality.

Market analysts predict that by 2013 operators worldwide are expected to invest nearly €6 billion (US$7.97 billion) in LTE equipment. The EU Commissioner for Telecoms and Media, Viviane Reding, foresees greater advantages with further deployment of LTE Advance technologies. It will ultimately turn mobile phones into powerful mobile computers and millions of new users will get ultra high-

speed internet access on their portable devices, wherever they are. This should create tremendous opportunities and plenty of space for growing the digital economy.

Gradual Uptake of Mobile VoIP

Mobile VoIP in the European telecoms industry is unlikely to achieve mass-market uptake by the end of this year. However, as network quality improves, selective use of mobile VoIP could start to affect operators’ revenue from higher tariff services such as international calls and voice roaming. Rising mobile broadband uptake could also increase the potential size of the mobile VoIP user base. It is estimated that 25% of online European customers regularly access the internet from their mobile phones, but until now, most European operators have not allowed VoIP services to be carried over their 3G networks. However, regulatory scrutiny is growing and, mirroring recent developments in the US, it is expected that the number of mobile operators in Europe allowing VoIP on their 3G networks will increase within the next three years.

As with fixed-line VoIP, solid demand in Europe is expected for mobile VoIP, which is likely to be used by consumers for low-cost international calling and to bypass international roaming charges while traveling. Currently, there are several factors hampering the adoption of mobile VoIP over 3G. In Europe, one of the factors — network quality — remains a problem, especially as the 3G coverage

Mobile Technology Continues to Evolve

Table 3: European Operator Commitments to LTE

Country OperatorAnticipated LTE

Service Launch

France Orange 2011-12Germany T-Mobile 2011Ireland Hutchison-3 2011Italy Telecom Italia Not KnownSpain Telefónica O2 2011Sweden TeliaSonera 2010Sweden Tele2 Sweden 2010Sweden Vodafone 2010

Source: Global Mobile Suppliers Association



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required for VoIP remains patchy, and with upload speeds poor. Network quality issues should be resolved as High-Speed Downlink Packet Access (HSDPA) handsets become more common and European operators upgrade their networks, despite this being time-consuming. Most current mobile VoIP applications are not easy to install and use on a mobile handset. As operators do not support them, they are usually not integrated with a handset and with network functionality.

In the longer term, mobile operators in Europe are likely to offer VoIP services themselves. This is likely to be part of the evolution of mobile networks in the region when LTE networks are deployed. This is likely after 2012. When this occurs, the cost of transporting voice calls over the internet should fall significantly. Mobile operators would essentially offer the same service as current mobile VoIP players, but users will benefit from greater scale.

European Mobile Apps Market Poised for Growth

The downloadable applications market continues to grow in Europe, with millions of consumers spending on applications for their smartphones. The market may slow eventually, however, as more apps stores take off and competition intensifies. The next two years will be a big year for mobile applications in Europe, with downloads from app stores expected to more than double in 2012. Mobile apps merchant Getjar forecasts that mobile applications revenues in Europe could grow to US$8.5billion in 2012, from US$1.5billion in 2009 as consumers download more apps partly because they are buying more smartphones. Getjar also believes that mobile apps store sales are set to overtake those of CDs by 2012.

Mobile applications in Europe have an average selling price of US$0.80. At present, Apple’s iPhone apps accounts for most of Europe’s mobile apps downloads, but Boston-based research house, Yankee Group, believes that strong results from Germany’s T-Mobile might suggest that Android will be the next breakout smartphone apps platform. The rising tide of smartphone sales and consumer desires for mobile apps are also set to benefit other mobile apps provider, including Windows Mobile, BlackBerry, and Symbian.

Mobile apps providers are expected to up their advertising on apps downloads. Apple released a newer version of its iPhone OS in April to capitalize on the latest craze for mobile apps. New York-based ABI Research expects users of Google’s mobile OS to download more than 800

million applications this year. In addition, research house ComScore estimates that social networking is the fastest growing application segment in Europe, rising by 239% in April 2010 from April 2009.

The golden age of mobile apps downloads, nonetheless is expected to be short-lived. ABI Research anticipates revenue from mobile apps to fall from 2013 onwards as competition among developers and app stores drives prices down and leads to more free and advertising-supported applications, including alternatives to brand-name apps that consumers pay for now. Looking at the trend of phone makers bundling more applications with their handsets, ABI also foresees further declines in the number of downloads after 2013. Nokia, Samsung, and Motorola are among the handset vendors integrating some social networking functions into their devices.

Market Outlook

The telecoms market in Europe showed renewed vigor in 2010, a trend that is likely to continue to at least 2012. Mergent expects a significant rise in mobile penetration among youth with the integration of new features and the deployment of 4G/LTE services. This trend is due to provide a further boost in terms of sales to both handset makers and telecom service providers over the next two years. Young consumers especially have a great appetite for upgraded and technologically advanced mobile phones as they want to utilize their innovative features to download music, change ringtones, send multimedia messages, and access the internet.

Northern European telecom companies especially began to experience a strong increase in mobile data usage in the second quarter of 2010, with some looking forward to spectacular full-year performance and results. Judging by the current performance, UK-based Bernstein Research expects further data use and operator pricing power to fuel a return to top-line growth. At the same time, the booming mobile broadband and exploding data usage is expected to compensate for shrinking sales in both fixed-line telephony and fixed broadband internet segments.

Contrary to Northern Europe, Western European telecom companies are anticipated to report far more humble performances than with their northern counterparts, amid the fact that most markets in this part of the region are saturated. Western European telecom companies foresee greater opportunities elsewhere, and are looking to expand



12


their footholds in emerging markets in South America, Asia and Africa. Going forward, M&A and cooperation agreements will continue to be a theme, with more deals expected to come after the merger of Orange and T-Mobile in the UK and footprint deals, like Telefónica’s purchase of Brazilian telco Vivo.

With new regulatory reforms at the European level having introduced further challenges for many service providers, the industry will look for innovative ways to expand and boost revenues. Moreover, intense competition should raise the standards of mobile and broadband services all around as well as deliver lower pricing. With demand for bandwidth accelerating and revenues also starting to pick up, it is highly anticipated that telecom operators will use the financial flexibility created in the sector in 2009 to upgrade both fixed and mobile networks to repurpose the old voice model.



13

Country ProfileFinland

The economic downturn that characterized the European economy in early 2010 had little influence on Finland’s telecom industry. In addition, the market continued to expand driven by the geographic expansion of mobile networks and the introduction into the market of fast, fiber optic broadband connections.

Finland’s broadband and mobile market remained dominated by four providers: the Finnet Group, TeliaSonera, Elisa Oyj and DNA Oy. The market over the last six months saw a four-way power struggle between these four groups of incumbent operators. Additionally, there were more than ten companies providing Internet Protocol Television (IPTV) services and many more began to offer double and triple-play packages.

In the broadband sector, TeliaSonera led the rest of the market leaders with a 32% market share in terms of

subscription volumes at the end of 2009. Elisa was second in terms of broadband subscriptions, having a market share of 31%, followed by DNA 18% and the Finnet Group at 11%. In the mobile sector, Elisa took the market leader position in 2009 with a share of 38% measured by subscription volumes, while TeliaSonera came in second at 36%. DNA was the third largest broadband provider with a market share of 24%, while the combined share of other operators remained at 2%.

In Finland, the market leadership position in the broadband and mobile markets tends to change very fast between the hands of the four largest incumbent operators. The ups and downs of players’ market shares are always due to changes in mobile subscription volumes. This trend marks the high competitive environment in Finland, whereby promotional campaigns are aggressive and in line with technology advances.

Sector Overview

Table 4: Market Share of Leading Broadband and Mobile Operators in Finland, 2009

Source: Finnish Communications Regulatory Authority

40

20

30

10

35

15

25

5

0

TeliaSonera Elisa DNA Finnet Others

(%)

Broadband sector market share Mobile sector market share



14

Country Profile - Finland


The telecom industry in Finland is one of the most advanced and sophisticated in the world. Finnish consumers and companies have proven to be quick adopters to new technologies by virtue of having the highest broadband and mobile penetration rates in Europe. According to the Finnish Communications Regulatory Authority (FICORA), roughly 70% of the population has broadband internet access, while mobile telephones are a common sight in Finland. In fact, both broadband and mobile telephone services have become such an essential part of daily life in Finland, with Finns reluctant to sacrifice them, even in bad economic times.

According to the Organisation for Economic Co-operation and Development (OECD), broadband penetration in Finland is high. There were nearly 2.5 million broadband connections in Finland in 2009 compared with 2.24 million broadband connections in 2008. In the mobile market, penetration stood at above 100% in 2009. Last year, there were nearly 7.7 million mobile subscriptions in Finland, which represented a 13% increase from 2008. According to FICORA, growth for mobile services was driven by higher mobile broadband subscriptions primarily meant for data transmission.

Part of the reason Finland has a high broadband penetration is its low mobile broadband prices. According to FICORA, Finland’s lowest overall prices for mobile broadband internet connections in Europe average at €9.84 (US$13.07) a month compared with the average of €34.65 (US$46.02) across many European countries. The lowest price in Finland has remained unchanged since 2008.

Leading Companies

Nokia Oyj (HEX: NOK1V)

Nokia’s net profit fell 40% to €227 million (US$302 million) in the second quarter of 2010 from €380 million

(US$505 million) in the same period the previous year. The world’s largest mobile phone maker, that once had the innovative edge in the industry, lost market share over the period with its sales battered. Nokia reported that its overall market share fell to 33% during the quarter, down from 35% the year earlier. However, its market share in the smartphone sector remained unchanged from the previous year at 41% in the second quarter of 2010.

Over the past two years, Nokia has succumbed to more intense competitive pressures from competitors especially Apple Inc and Research in Motion Ltd (TSX: RIM), the latter of which makes BlackBerry handsets. The average selling price of Nokia handsets continued to fall from €64 (US$85) in 2009 to €61 (US$81) currently, while that of smartphones dropped more than 20% to €143 (US$190) amid strong competitive pressure.

Elisa Oyj (HEX: ELI1V)

Elisa reported its revenue rose 3% to €364 million (US$483 million) in the second quarter of 2010 compared with €355 million (US$472 million) in the same period the previous year driven by a recovery in the company’s consumer mobile services segment and in equipment sales, as well as in corporate customer mobile and ICT services. According to Elisa’s quarterly report, revenue from its consumer customer business rose 4% to €217 million (US$288 million), while corporate customer business revenue inched up 1% to €147 million (US$195 million) during the quarter.

Elisa’s mobile subscriptions also increased by 118,000 in the second quarter of 2010 due, in particular, to a rise in new subscribers for 3G and services, as well as increased uptake of mobile broadband. The company in the second quarter continued to invest in the construction of its 3G network, which enables mobile broadband in nearly 100 new areas, and its 4G network for pre-commercial use in Helsinki.

Sector Investment

The Broadband 2015 project

Finland has always been a trailblazer when it comes to telecommunications. Ever since telecommunications operations were opened up gradually to competition in

Table 5: Growth of Broadband Connections and Mobile Subscriptions 2007-2009

Year 2007 2008 2009

Broadband Connections 1,760,200 2,096,600 2,473,600

Mobile Subscriptions 6,080,000 6,830,000 7,700,000

Source: Finnish Communications Regulatory Authority



15

Country Profile - Finland

1985, the country has showed the rest of world the direction of the telecommunications market with a combination of public and private telephone systems that made deregulation easier.

When the Telecommunications Act came into force in 1987, it removed exclusive rights and made all telecommunications a licensed activity. Nearly 29 years after the world’s first ever commercial GSM call was made in Finland on 1 July 1991, Finland is once again pioneering the move to provide broadband services to almost all its residents by 2015. The project nicknamed Broadband 2015 was launched in December 2008 with an objective to construct networks capable of providing top speed broadband subscriptions of 100 megabit connections to 99% of Finland’s population.

The estimated cost of this project is €200 million (US$266 million), one third of which is to be covered by public funding, while the rest will come from private telecom operators. Government support is directed at constructing the core network and subscriber lines located at more than two kilometers distance from the subscribers, while the construction of top-speed broadband networks by private operators is targeted in the most sparsely populated areas in Finland.

Market Outlook

The Finnish telecom sector is likely to continue its stability from 2010 onwards, with mobile phone sales and subscriptions anticipated to reach new highs. As usual for Finland’s telcos and the country’s top mobile phone manufacturer, Nokia, the remainder of 2010 will be marked by intense competition as consumer buying power returns on the back of a slight economic recovery. Nokia expects the mobile phone market to grow 10% this year. The company in a bid to address growing direct competition from rivals such as Samsung and Sony Ericsson cut phone prices across its portfolio after January. Over the next six months this will likely create demand for cheaper phones, helping the mobile segment grow.



16

Country ProfileFrance

The French telecoms industry held up relatively well against the economic downturn over the last six months, with the mobile and broadband markets seeing upward growth, albeit slower in some areas than in previous quarters.

In the mobile arena, French telecoms regulator ARCEP reported total operators’ revenue fell 0.3% lower at €40.7 billion (US$54.05 billion) in 2009; however, revenues for mobile services and mobile broadband continued to climb. Based on ARCEP data, mobile network and broadband services revenues grew 1.5% and 13.7% to €20.4 billion (US$27.10 billion) and €7.4 billion (US$9.83 billion) respectively in 2009 due to the consumption of value-added services such as data and mobile internet. However, the rise failed to offset revenue declines posted by both narrowband and capacity services of 11.4% and 3% respectively.

As for the French fixed broadband network services sector, revenue rose nearly €1 billion (US$1.33 billion) to €7.4 billion (US$9.83 billion) in 2009 compared with the previous year. The increase was mainly due to a rise in the number of new subscriptions, driven by the usage of value-added services such as voice over VoIP and IPTV. The switch to broadband also meant that the number of traditional Public Switch Telephone Network (PSTN) and Integrated Services Digital Network (ISDN) connections declined.

The main incumbent player, France Télécom, remained one of the world’s major players in telecommunications, with interests in markets across Europe and Africa. Despite sector liberalization in recent years, the company still dominated all its segments, although growing competition from a small number of major players, notably SFR and Iliad SA, continued to erode this lead.

Meanwhile, telecom carriers’ investment levels fell 8.6% to €6 billion (US$7.97 billion) in 2009 after an upswing in 2008. According to ARCEP, the most significant drop was in fixed network spending, reflective of lesser growth for ADSL broadband connections and a decline in investments in dial-up networks as spending on optical fiber and the expansion of 3G networks moderated in 2009.


The telecoms market in France is the third largest in Europe. The telecoms market has undergone major changes in recent years, however, with the number of mobile subscriptions overtaking those for fixed–line services over the past few years. ARCEP estimates that in 2009 the number of mobile phone users increased by 3.5 million or 6% year-on-year. The increase mainly reflected the growing demand for postpaid services, with customers increasingly being tempted with a broad range of smartphones, in particular, the iPhone.

France’s fixed broadband network services showed a slowdown in growth trajectory in 2009. According to OECD Broadband portal, there were approximately 19.6 million broadband subscribers in France in 2009. This was an increase of roughly 2 million subscriptions from 2008, compared with an annual increase of three million between 2005 and 2007. The shift towards mobile broadband was behind this slowdown. Despite the slowdown in fixed broadband internet subscriptions, the number of people accessing TV services over Asymmetric Digital Subscriber Line (ADSL) is rising at a tremendous rate. The increase was in line with the current acceptance towards newer digital media. In 2009, TV ADSL grew 40% and brought the total subscriber base to close to nine million households.

Sector Overview

Table 6: Telecom Carriers’ Investment Levels

2007 2008 2009Growth

2008-2009

Investments billion (€ billion) 6.1 6.5 6.0 -8.6

by fixed network operators 3.8 4.1 3.7 -9.4by mobile network operators 2.4 2.4 2.3 -7.4

Source: ARCEP, the French Telecoms Regulator



17

Country Profile - France

Leading Companies

France Télécom SA (PAR: FTE)

France Télécom reported that its net income in the first half of 2010 rose to €3.7 billion (US$4.91 billion), up 45% over the corresponding period the previous year, boosted by a €1.03 billion (US$1.37 billion) one-time gain linked to its network merger with Deutsche Telekom’s T-Mobile in the UK. But its revenue was down 2.2% to €22.1 billion (US$29.35 billion) in the first half of 2010 due to regulatory changes, in particular a cut in fees that operators charge each other to connect calls.

In France, France Télécom’s revenues fell 2% to €11.6 billion (US$15.41 billion) in the first half of 2010 from €11.8 billion (US$15.67 billion) in the first half of 2009 hurt by tough competition and reportedly weak broadband subscriber gains in the first quarter of 2010. In the second quarter, its share of new broadband subscribers rose slightly to 15.5% from 14% in the last quarter, however, as it still failed to make up for the group’s overall revenue decline in the first half.

SFR

SFR’s revenues in the first quarter of 2010 rose 1.9% to €3.1 billion (US$4.12 billion) from €3 billion (US$3.98 billion) in the first quarter of 2009 as a result of an increase in the mobile data business, which more than offset a substantial reduction in tariff cuts resulting from national and European regulations. During the quarter, SFR mobile revenues climbed 0.2% to €2.2 billion (US$2.92 billion) following stronger iPhone and mobile connectivity sales. The company added 225,000 new postpaid mobile customers during the period, and expanded its mobile customer base to 15 million. Due to the popularity of smartphones, SFR’s mobile data revenues represented 21.9% of the mobile revenues in 2009 and grew by 4.6 percentage points to 26.5% in the first quarter of 2010. Additionally, SFR’s broadband internet and fixed revenues grew 5% to €981 million (US$1.30 billion) in the first quarter of 2010, as a result of demand for broadband internet in the commercial sector.

Sector Investment

The Government, in an effort to expand France’s broadband coverage, published in January a policy document outlining the National Ultra High-Speed Program, with some €2

billion (US$2.66 billion) in funding proposed. The aim is to encourage Fiber-to-the-Home (FTTH) deployments across the country by 2025, by investing alongside the private sector. Meanwhile, the French Government expects private operators to invest twice as much as the State.

France’s telecom and broadband providers shares the ambitions of national authorities to roll out very high-speed broadband across the country with the aim of facilitating the development of digital communications tools and maintaining a competitive edge. France Télécom, through its key brand, Orange, is set to invest €2 billion (US$2.66 billion) between now and 2015 in the development of fiber optics in France. French broadband provider, Iliad, has also pledged its commitment towards this program.

Telecommunications operators are deploying fiber optic networks in heavily built-up areas, such as Paris. But they have been slow to extend outside major cities. The first phase of the project started in July. This will see the expansion of fiber optic networks to cities such as Cannes, Montpellier, Orleans, Rennes, Strasbourg and Toulon.

Market Outlook

Although France’s economy may take some time to recover, the French telecoms market is set to see further growth from 2010 onwards with sustained demand for mobile data and other value-added services. ARCEP data shows the demand for value-added services such as VoIP and IPTV by households has continued to rise steadily and that the only decline seems to be the demand for traditional fixed-line connections. As network quality improves over the next few years in line with the goal of the National Ultra High-Speed Program, the French telecoms market is bound to see the demand for VoIP and IPTV reaching new heights.

Nonetheless, 2010 will also be a good year for French telecoms and equipment providers as many see greater returns from their services and products offered. The optimistic outlook is predicted based on the current fast growing demand for mobile and broadband subscriptions, as well telecom equipment, especially smartphones. However, there is little doubt that competition will also stiffen as players continue to outdo each other.



18

Country ProfileGermany

Germany over the last six months kept its position as one of Europe’s largest telecoms markets, supported by an affluent population, yet receptive to emerging technologies. The telecommunications industry, especially the mobile market, is still a key part of the German economy and of strategic importance to its competitiveness. In Germany, the mobile market has an established infrastructure and highly developed end products, with user-friendly applications, content, interaction and real entertainment being sought after by consumers.

German mobile service operators recorded strong growth in data service revenues in the past six months from December 2009 onwards. This was due to the 3G technology that was first made available to consumers in 2004, and which now allows users to access richer content such as mobile TV, videos, games and music. Germany continued to lead other European countries like Italy and France, in terms of having the most consumers download music directly to mobile phones. The country had more than one million mobile music downloaders in March 2010, indicating a year-on-year growth rate of 102%.

With the advancement in mobile handset technology and mass availability of affordable data plans, a growing number of German mobile subscribers now have the ability to access the internet via their phones. This was underlined by 33.8% of the German mobile subscriber base accessing an application in the three months ended March 2010. A total of 20.3% used a browser to access the internet and 8.8% accessed social networking sites or blogs.


Germany has the third largest broadband market in Europe in terms of subscribers, and it has shown no signs of having reached its saturation point. According to recent OECD data, in the six months from June to December 2009 the German broadband market grew by 800,700 connections, totaling 24.84 million connections. This represented a household penetration rate of 30.4% or 30.4 subscribers per 100 inhabitants. The number of cable broadband connections grew to nearly 2.3 million, or 9.24% of the market, while the majority of broadband users in Germany (22.39 million) still used DSL.

While the fixed-line sector’s popularity was on a downturn in Germany, mobile 2G and 3G began taking over as the main voice access technologies. The German mobile telecoms services market grew by one million over the previous quarter to more than 109 million, giving a penetration rate of over 130% as of the first quarter of 2010. The steady growth rate was mainly due to the increased use of SIM cards for mobile internet access and also for SMS messaging. Germany recorded a rise of 24% in the number of SMS messages sent, from 27.8 billion in 2008 to 34.4 billion in 2009, according to statistics from German telecoms regulator Bundesnetzagentur (BNetzA).

Leading Companies

Deutsche Telekom AG (FSE: FTE)

Deutsche Telekom in the second quarter of 2010 reported net profit 8.8% lower to €475 million (US$631 million) from €521 million (US$692 million) in the previous corresponding period, hurt by costs related to its T-Mobile UK unit’s merger with France Télécom’s British operations. In addition, the flood of fixed-line clients canceling their contracts also hurt the group’s performance. Around 1.7 million clients dropped such services in the past year. In the second quarter of 2009, Deutsche Telekom’s reported fixed-lines sales dropped 2.9%.

The former German monopoly, nevertheless, continued to enjoy popularity for mobile sales and services, as customers increasingly use their handsets to go on the internet or download music and videos, making up for losses in voice revenue. In Germany, Deutsche Telekom reported mobile revenue rose 5.5% to €2.05 billion (US$2.72 billion), while in the US the number of third-generation smartphones held by its customers tripled to 6.5 million from the previous year.

Nokia Siemens Networks

The Siemens AG (FWB: SIE) and Nokia joint venture, Nokia Siemens Networks, reported yet another poor quarter in terms of business performance as it struggled amid lower capital spending by telcos and sharpened competition from Ericsson (OMX: ERIC.B), Alcatel-

Sector Overview



19

Country Profile - Germany

Lucent (NYSE: ALU) and rising Chinese players Huawei and ZTE (HKSE: 0763). In the second quarter of 2010, Nokia Siemens registered net sales down 5% to €3 billion (US$3.98 billion) from €3.2 billion (US$4.25 billion) in the second quarter 2009 due to the ongoing industry-wide issue related to security clearances in India, which prevented the completion of product sales to customers, and shortages of certain components that eventually affected the broader industry. Despite struggling to maintain competitiveness, Nokia Siemens Networks improved its operating loss to €179 million (US$238 million) in the second quarter of 2010 from an operating loss of €188 million (US$250 million) in the same period the previous year.

Sector Investment

In order to remain competitive and technologically up-to-date, Deutsche Telekom is restructuring its business to drive up revenue from growth areas through investments in intelligent networks and its portfolio of IT, internet and network services. The group, in March, announced plans to invest up to €10 billion (US$13.28 billion) between 2010 and 2012 in fiber optics, new mobile communications technologies, and IT processes to give customers more speed and new products. The development of fiber optics started in June 2010 as Deutsche Telekom shifted from its focus on very-high-bitrate DSL (VDSL) to FTTH. The incumbent telecom operator in Germany made plans to provide FTTH to four million households, or 10% of all German households by 2012.

Market Outlook

Overall, the lower telecom revenues seen in 2009 should recover slightly over the next six months, as consumer spending on mobile data and broadband picks up. Also by the end of this year, mobile broadband should be making significant progress as the first LTE-based networks come on-stream for consumers in Germany. By virtue of this, Mergent anticipates a rise in mobile subscriptions as demand for smartphones grow on improved mobile data services. The recovery of Europe’s difficult economic environment should also allow for Germany’s mobile telecommunications sector to continue expanding in the near future, allowing it to close the mobile penetration rate gap with other developed countries.



20

Country ProfileItaly

The Italian telecommunications equipment and services segment suffered over the last six months as a consequence of the economic crisis. According to the US Department of Commerce, sales of systems and infrastructure equipment, both for fixed and mobile telecom applications, fell 9% to be worth US$320 million in 2009. The delay in the development of the much-needed ultra-high speed Next Generation Networks (NGNs) hindered both the infrastructure market segment and the systems segment.

Meanwhile, the telecommunication services segment still accounted for the lion’s share of the market, despite falling by 1% to US$47 billion in 2009 due to a decline in all fixed and mobile services. To make up for the slowdown in revenues from traditional voice services, both fixed and mobile, operators launched new value-added services to boost their average revenue per user (ARPU). In 2009, sales of mobile value-added services grew 6.5% to US$7.2 billion.

While many business users still utilized smartphones mainly for mobile email applications and, to a lesser extent, for internet access and SMS messaging, most Italian consumers utilized their mobile phone as a multimedia device, remaining open to new services as they became available. As such, they are playing a key role in the development of the mobile VAS market.

The mobile cellular market remained characterized by the fast adoption of new technology. Italy is one of the leading HSPA markets in Europe in terms of customer connections. Additionally, there was significant growth in both 3G uptake, as consumers continued to migrate from GSM networks, and also in broadband, as a result of cheaper access prices coupled with both fiber and DSL network upgrades that have enabled a growing number of consumers to make use of high bandwidth services.

In the broadband internet segment, operators expanded their coverage by upgrading their copper wire infrastructure to fiber networks over the last year. In 2009, there was 100% coverage for urban areas, while that in the sub-urban areas increased slightly, from 93% to 94%, and coverage in rural areas rose from 75% to 82%.

Italy’s telecoms industry is one of the largest and most influential in the Mediterranean and has one of the highest rates for mobile penetration in Europe. The US Department of Commerce estimates the value of the Italian telecommunications market was US$60.2 billion in 2009, split between US$27.3 billion for fixed line equipment and services and US$32.9 billion for mobile telecom equipment and services. There were close to 90 million mobile subscribers in Italy in 2009, far exceeding the country’s population of 60 million people. The high number of subscriptions is due to the popularity of keeping multiple prepaid cards.

The most recent OECD data shows broadband penetration in Italy stands at 20.5% of the country’s population, against a European average of 24.8%. Yet despite these developments, Italy’s average broadband download speed is still below the OECD average of 17.4Mbps. In October 2009, the OECD ranked Italy 24th among 30 countries surveyed in average advertised download speeds.

Leading Companies

Telecom Italia SA (MI: TIT)

Italy’s biggest phone company, Telecom Italia, posted a 22% increase in net income in the second quarter of 2010 to €610 million (US$810 million) from €499 million (US$663 million) a year earlier as growth in services and strict cost-cutting helped offset an overall drop in revenue. Second quarter 2010 revenues were €6.8 billion (US$9.03 billion), down slightly from €6.83 billion (US$9.07 billion) in the same period last year. Telecom Italia, like other phone operators across Europe, faced an uphill battle to boost revenue amid an economic slump that prompted consumers to cap spending. The present focus is on stabilizing profit and reducing debt. In August, Telecom Italia reached a consensus with labor unions to slash 3,900 jobs on a voluntary basis by 2012.

WIND Telecomunicazioni SpA

Despite the ongoing negative economic climate in Italy, WIND reported total revenues rose 2.6% to €2.9 billion (US$3.85 billion) in the first half of 2010, due to strong

Sector Overview Industry Size and Value



21

Country Profile - Italy

contribution from service revenues which grew 3.7% during the period. The performance of WIND’s mobile business during the period remained strong with a 6.0% growth in service revenues driven by increased subscriptions and notwithstanding the reduction in termination rates and an increasingly competitive environment. WIND, in the first half of 2010, saw its mobile subscription base grow 10% to 19.3 million, having recorded 858,000 net additions during the period. Fixed-line service revenues in the first half of 2010 declined 0.8% mainly due to lower revenues in the international wholesale business, only partially offset by a 3.1% growth in revenues in the consumer segment.

Sector Investment

Italy has long debated the need for rolling out a nationwide fiber optic network to improve its competitiveness. Italy’s telecom regulator even proposed setting up a fund with money provided by both private companies and the state. However, it failed to materialize due to funding hurdles. Now Italy’s major telecom groups, Fastweb (MI: FWB), Wind and Vodafone Italia, have announced plans to set up fiber optic networks throughout 15 cities in the country over the next five years. The group is expected to invest €2.5 billion (US$3.32 billion) for this project.

However, further expansion of the project to reach up to half of Italy’s 60 million people is likely to increase the initial bill to €8.5 billion (US$11.29 billion). The initial phase of the project would start in Rome. In addition, Telecom Italia has its own plans to offer 100 megabits per second broadband to 50% of the Italian population by 2018 at an unspecified amount of investments. The country’s largest telecom operator also has plans to invest €7 billion (US$9.30 billion) in its fixed-line network upgrade in the next three years.

Market Outlook

The Italian telecoms market should see further developments in technology and further subscriptions in 2010. Mobile phone subscriptions should continue to grow as more and more people adopts mobile-only solutions and VoIP, contrary to the fixed-line segment, which should see a prolonged deterioration in the number of subscribers. Competition is due to heat up in the mobile segment with the admission of new operators such as Infostrada and Fastweb driving further growth in the mobile broadband market. With regard to internet usage, Italy still lags behind other major European countries, but it has experienced

significant growth in recent years, with the continued development of fiber networks and Asymmetric Digital Subscriber Line 2+ (ADSL2+) infrastructure upgrades.



22

Country ProfileSweden

The Swedish market held up fairly ell over the last year, despite shrinking demand in some markets and driven by growing demand for mobile services. The Swedish Post and Telecom Agency (PTS) estimates that mobile call and data services revenues were up 9% in 2009 to SEK22.2 billion (US$3.14 billion).

The rollout of LTE technology in Sweden in 2009 significantly boosted the appeal for mobile broadband, leaving the fixed broadband segment battered with falling subscriptions. Swedish telcos continued to invest in the deployment of 4G networks based LTE technology in order to spike up the demand for mobile broadband services moving forward. TeliaSonera launched the world’s first commercial LTE mobile services in Stockholm in 2009 and subsequently extended its network to cover 25 Swedish cities by the end of 2010.

Mobile telephony continued to gain popularity at the expense of traditional fixed-line telephony over the last year. At the end of 2009, Sweden’s mobile operators served nearly 12 million subscribers, up 7%, compared with fixed-line telephony services based on PSTN and ISDN technologies, which declined at a record rate of around 4% to 5.15 million in 2009. The rise in mobile telephony subscriptions was attributed to mounting demand for mobile data services, with competition forcing down consumer prices.


Sweden’s telecom market is one of the most mature in Europe, characterized by high mobile and broadband penetration by European standards. The market’s growth is being driven by ongoing technology shifts, which is evident in the high number of mobile and broadband subscriptions on wireless and fiber technologies. The mobile telephony sector is particularly the most vibrant. The introduction of VoIP and mobile broadband in addition to just mobile call services, has paved the way for the mobile telephony segment to branch out into data services, once served only by fixed-line internet/ broadband providers. This has resulted in intense competition between mobile and fixed broadband providers.

The number of broadband subscriptions in Sweden was 4.26 million in 2009. Mobile broadband comprised a large part of this — at 1.31 million subscriptions. In contrast, subscriptions for fixed broadband subscriptions represented 2.95 million in 2009. There was a 4% reduction in the number of xDSL subscriptions within the fixed broadband segment, while the number of subscriptions via cable television networks and fiber Local Area Network (LAN) rose 3% and 17% respectively in 2009. According to the OECD, broadband penetration in Sweden stood at 32.4% in 2009.

Leading Companies

TeliaSonera AB (SE: TLSN)

Nordic’s leading telecom operator, TeliaSonera, reported net profit rose 17% to SEK5.2 billion (US$734 million) in the second quarter of 2010, up from SEK4.5 billion (US$636 million) in the same period the previous year. The company attributed the increase to strong performance in Eurasia, buoyed by improved economic conditions in main markets like Kazakhstan. In Kazakhstan, TeliaSonera’s net sales in local currency increased by 16.7% on the back of continued strong subscription intake and an improved macroeconomic situation in the country. In addition, strong subscription intake also drove the company’s Uzbekistan and Tajikistan net sales in local currencies in the second quarter of 2010 by 47.6% and 27.7% to the equivalents of SEK394 million (US$56 million) and SEK207 million (US$29 million), respectively. During the second quarter of 2010, TeliaSonera saw its total subscriptions rise by 12.8 million from the second quarter 2009 to 152.4 million, of which 5.9 million to 51.2 million in the consolidated operations and 6.9 million to 101.2 million in the associated companies.

Ericsson AB (OMX: ERIC.B)

Ericsson booked a net profit of SEK1.88 billion (US$266 million) in the second quarter of 2010, up from SEK831 million (US$117 million) a year earlier when heavy restructuring charges weighed, but missing its own expectations for SEK2.73 billion (US$386 million) by

Sector Overview



23

Country Profile - Sweden

a wide margin. During the period, the company’s sales fell to SEK48 billion (US$6.78 billion) from SEK52.1 billion (US$7.36 billion) a year earlier but, its operating profit rose 150% to SEK3 billion (US$424 million) in the second quarter of 2010. According to Ericsson, component shortages across the telecom gear industry affected its second quarter sales by some SEK3 billion (US$424 million) to SEK4 billion (US$565 million). Along with rivals, Paris-based Alcatel-Lucent and Nokia Siemens Networks, Ericsson also suffered from slowing demand in several markets in the past year as operators cut investment during the economic downturn and growing price pressure in a fiercely competitive market.

Policy and Regulation

The PTS in April 2010 proposed the extension of rules to prevent mobile operators from charging excessive prices for services that they sell to each other and that are required for interconnection. The interconnection between different mobile networks is important for consumers, business undertakings and organizations to stay connected. But if the price of interconnection services sold by mobile operators to each other is excessively high, customers would then be subjected to pricier rates. The proposed extension of the rules by the PTS also aims to improve competition between operators in the market, which is likely to result in greater freedom of choice and lower mobile telephony prices for consumers. PTS’ final decision is not likely to be announced until by the end of this year.

Market Outlook

The outlook for the overall telecoms sector in Sweden for 2010 is likely to remain subdued, with concerns over debts levels in Europe and high unemployment in key markets remaining high. Prices for fixed-line services and broadband services, which have for the past few years fallen steadily, may continue to fall albeit at a slower pace. The shift in technology in the broadband internet segment from fixed-line to mobile is likely to become more evident. This is supported by PTS’ survey for the second consecutive measurement period in 2009 finding that use of fixed-line broadband was down in favor of mobile broadband. Swedish telco investment in 4G is also expected to be minimal, hindered by the need for 4G-compatible phones.



24

Country ProfileUnited Kingdom

The UK telecoms market held up fairly well over the last six months, given the country endured one of the worst downturns in decades. In the mobile telephony segment, the Office of Communications (Ofcom) estimates that total revenues across the UK’s largest mobile operators — O2, Vodafone, T-Mobile and Orange — in the fourth quarter of 2009 fell by 2.1% to £3.38 billion (US$5.4 billion) despite a 2.7% increase in the number of subscriptions to 70.65 million in the fourth quarter of 2009. The fall in mobile telephony revenues followed a 2.1% fall in revenue from call and other charges and another 1.9% fall in messaging revenues.

Despite a range of rival Internet Service Providers (ISP) offering competitive deals, BT Group Plc maintained its dominance as the largest residential and small business broadband supplier in 2009, with a market share at 26.7%. BT, nonetheless, came under pressure from the country’s second largest ISP, Virgin Media, which continued to install fiber optic cables. Growth was also noted for Virgin Media’s cable network, which saw its subscribers rise from 3,683,000 in 2008 to 3,845,000 in 2009. Competition in the UK market saw the introduction of a raft of keenly priced broadband offerings that tempted customers away from the country’s largest ISP.

As for the fixed line sector, total fixed voice revenues fell 1% to £2.24 billion (US3.58 billion) in the fourth quarter of 2009. This annual fall in revenues was mirrored by a fall in call volumes. At 34.3 billion minutes, these were 1% lower in the fourth quarter of 2004 compared with the same period in 2008.

The UK’s telecom market is one of the largest and most advanced in Europe. With wide coverage and good network capabilities, it is no surprise that the market’s mobile and broadband penetration is comfortably ahead of the European average, while digital TV uptake has reached 90% of the population. The telecom market is characterized by fierce competition in the mobile and broadband sectors, and by an innovative broadcast sector that has pioneered business models for distributing digital content. As a consequence, consumer prices have fallen steadily across the board, leading to a reduction in telco revenues.

Demand for broadband internet services continued grow over the last six months. UK research recently found that most people now regard the internet as an essential utility — as important as electricity, gas or telephony. At the end of 2009 there were an estimated 18.2 million UK residential and SME broadband connections — 957,000 more than there were at the end of 2008. In terms of penetration, OECD ranked the UK at 13 out of 30 countries at 28.9 subscribers per 100 people, behind the Netherlands, Denmark, Switzerland and South Korea.

Leading Companies

BT Group Plc (LSE: BT.A)

The UK’s largest fixed-line phone company, BT Group, reported revenue in the first quarter of 2010 ended June 30, down 4.4% to £5.01 billion (US$8.01 billion) as falling sales amid a volatile economic environment

Sector Overview

Table 7: Subscriber Numbers by Operators (000’s)

Vodafone Q2 T-Mobile Orange

Q4-2008 16,565 19,470 16,786 15,995

Q1-2009 16,018 19,580 16,684 15,850

Q2-2009 16,007 19,813 16,588 15,853

Q3-2009 16,388 20,083 16,608 16,110

Q4-2009 16,553 20,406 17,178 16,514Source: Office of Communications




Country Profile - United Kingdom

25

prompted consumers to reduce spending. BT’s net profit, nevertheless, rose 17% between April and June as its cost-cutting plan continued to pay off. The group reduced its operating costs by 6% to £4.4 billion (US$7.03 billion) in the first quarter, principally due to reductions in labor costs. While research houses had predicted £100 million (US$160 million) of outflows, the group surprised analysts over its free cash flow when it reported an inflow of £415 million (US$663 million) due to improved profitability and lower capital expenditure. Also gradually offsetting BT’s shrinking market share in the fixed-line telephone segment was the group’s booming broadband service segment. For the first quarter of 2010, BT added 96,000 new customers to its broadband service, especially following the launch of its fiber-based broadband product “Infinity” in January.

Vodafone Group Plc (LSE: VOD)

Vodafone finally moved back on the growth track after it reported an increase in group service revenue by 4.9% to £10.6 billion (US$16.94 billion) in the second quarter of 2010 following an increase in data revenues linked to higher use of smartphones and other data-centric devices. In Europe, Vodafone’s service revenue fell 4.2% to £6.77 billion (US$10.82 billion) in the second quarter of 2010, due to prolonged weakness across most of its Western and Central Europe operations, although good growth continued in the Asia-Pacific and the Middle East.

The group’s UK operations reported improvements in service revenue, up 0.7% from £1.19 billion (US$1.90 billion) in the first quarter of 2009 to £1.20 billion (US$1.92 billion) in the second quarter of 2010, driven by strong data revenue growth of 27.8%. During the quarter, Vodafone’s UK operations achieved higher penetration of mobile internet bundles, continued growth in its contract customer base (with increasing penetration of new products launched in the second half of the previous financial year) and improved roaming trends.

In Africa and Central Europe, Vodafone’s service revenues grew 3.7%, a 1.3 percentage point improvement from the previous quarter, driven by strong performance in Turkey and the region’s improving economic environment. In the Asia-Pacific and the Middle East, service revenue increased 10.5%, a 5.5 percentage point improvement over the previous quarter on continued strong customer growth and better usage trends in India.

Mergers and Acquisitions

In a bid to counter more intense competition, T-Mobile and Orange merged their operations to create a mobile phone giant known as Everything Everywhere. The integration was believed to have cost both T-Mobile and Orange between £600 million (US$959 million) and £800 million (US$1.28 billion). In addition, the new Everything Everywhere will continue to keep Orange and T-Mobile as leading brands in the market, with each brand having its own shops, marketing campaigns, propositions and service centers.

Combining both brands, the newly merged Everything Everywhere now boasts 713 retail stores, 16,000 employees, 28.4 million customers and a market share of roughly 37% — which exceeds that of rival O2. The merger follows the agreement unveiled in September last year for the forming of a joint venture in the country, and the completion of the merger in April 2010 upon obtaining of all necessary approvals.

Market Outlook

Mergent anticipates that the overall improving economic dynamics may shift in favor of the telecommunications industry. The UK telecommunications market is therefore expected to grow moderately in 2010. The market is expected to be particularly driven by the growing popularity of smartphones, and demand for data service and mobile internet applications. Despite an overall positive outlook for the industry, competition is nevertheless expected to build up for both mobile operators as well as ISPs, hence causing a potential business slowdown for some operators. Companies are expected to remain focused on balance sheet improvements, financial discipline and free cash-flow generation.



Currency Conversion Table

26

Source: US Federal Reserve

Currency exchange rates as of August 6, 2010

Currency Unit US$ per Unit Units per US$

British Pounds (£) 1.5979 0.6258

Euro (€) 1.3282 0.7529

Swedish Krona (SEK) 0.1412 7.0805



The Scope Of This Report

27

This report examines the telecommunications sectors in Europe, with special focus on Finland, France, Germany, Italy,

Sweden and the United Kingdom. The report aims to give a general picture of the current environment as well as global

and regional affairs that influence the development of the various segments of the industry, using available data. As part

of these industries, a number of industry segments are examined, namely: voice and data, wireless services and equipment

makers.

Research analysts draw on a range of credible industry and company data sources as well as news and information services

to research and analyze the current trading environment, industry landscape and market trends and outlook for a particular

sector. Primary sources are used, unless otherwise indicated, and include company data, e.g. annual reports and company

financial results: macroeconomic and trade data; data information from global and country regulatory, industry and trade

bodies; government data; and reports; and reports from industry organizations and private research organizations.

The following SIC codes are relevant to the industry. For the services side: 4812 (Radiotelephone Communications); 4813

(Telephone Communications, excl. Radio); 4822 (Telegraph and Other Communications) and 4899 (Communications

Services). For the manufacturing segment: 3661 (Telephone and Telegraph Apparatus); 3663 (Radio and TV

Communications Equipment) and; 3669 (Communications Equipment).



28

Key References

Global

International Telecommunications Union (ITU)Headquartered in Geneva, Switzerland, the ITU is an international organization under the United Nations through which governments and the private sector coordinate global telecoms networks and services.http://www.itu.int

European Competitive Telecommunications Association (ECTA)The ECTA is the leading pan-European trade association serving the telecommunications industry. http://www.ectaportal.com

The Telecommunications Industry Association (TIA)The TIA is a leading US non-profit trade association representing the communications and information technology industry, with strengths in market development, trade shows, domestic and international advocacy, standards development and enabling e-business.http://www.tiaonline.org

Organisation for Economic Cooperation and Development (OECD)An international organization that helps governments tackle the economic, social and governance challenges of a globalized economy.http://www.oecd.org

European Union Portal (EU)This website, administered by the EC in partnership with other European institutions, provides up-to-date coverage of EU affairs and essential information on European integration. http://europa.eu.int

Mobile Data Association (MDA)The Mobile Data Association is a non-profit, global association that represents vendors and users of mobile data and their advisors.http://www.mda-mobiledata.org

The European Information Technology Observatory (EITO)EITO is an organization specializing in the field of international market research on ICT. EITO offers up-to-date studies and analysis on the Western and Eastern European IT and telecommunications markets.http://www.eito.com

European Institute for Telecommunications and Audiovisual Media (IDATE)Since 1977, IDATE has been one of the leading centers for exchange and analysis in Europe, specializing in the telecoms, internet and media sectors. http://www.idate.fr

European Telecommunications Network Operators’ Association (ETNO)ETNO is the voice of European telecoms and electronic communications operators in Brussels. Its primary purpose is to establish a constructive dialogue between its member companies and decision makers and other actors involved in the development of the European information society.http://www.etno.be



29

FTTH Council EuropeThe council’s objective is to accelerate the deployment of fiber access within Europe to consumers and businesses by educating European governments, policymakers and political leaders on why and how high-speed fiber connectivity can be delivered to all European citizens over the next few years.http://www.europeftthcouncil.com

Finland

Confederation of Finnish Industries

The Confederation of Finnish Industries is the leading business organization in Finland. It represents the entire private sector, both industry and services, and companies of all sizes.http://www.ek.fi/ek_englanti/index.php

Finnish Communications Regulatory Authority (FICORA)The Finnish Communications Regulatory Authority is a general administrative authority for issues concerning electronic communications and information society services in Finland.http://www.ficora.fi/englanti/index.html

Ministry of Transport and Communications (MINTC)The ministry implements transport and communications policy in Finland.http://www.mintc.fi

Virtual FinlandVirtual Finland is a multimedia guide with information, facts and daily news on Finland produced by the Finnish Foreign Ministry.http://virtual.finland.fi/webinfo.html

France

France Télécommunications Regulatory Authority (ARCEP)ARCEP is France’s independent regulatory body created to enable telecommunications activities to be carried out freely and to develop legal, economic and technical arrangements that will allow for telecommunications activities to be exercised effectively.http://www.art-telecom.fi/eng/index.htm

Germany

Federal Network Agency for Electricity, Gas, Telecommunication, Post and RailwayThe central task of the Federal Network Agency is to ensure compliance with the Telecommunications Act (TKG), the Postal Act (PostG) and the Energy Act (EnWG) and their ordinances.http://www.bundesnetzagentur.de/enid/2.html

Italy

The Italian Communications Authority (AGCOM)The Italian Communications Authority (AGCOM) is the independent Italian regulatory body responsible for overseeing the telecommunications, audiovisual and publishing markets.http://www.agcom.it



30

The Italian Institute for Foreign TradeThe Italian Institute for Foreign Trade is the Italian public agency entrusted with the promotion of trade, business opportunities and industrial cooperation between Italian and foreign companies.http://www.italtrade.com

Sweden

The National Post and Telecom Agency (PTS)The National Post and Telecom Agency is the authority that monitors the telecommunications, IT, radio and postal sectors.http://www.pts.se

United Kingdom

Ofcom

Ofcom is the regulator for the UK’s communications industries, with responsibilities across television, radio, telecommunications and wireless communications services.http://www.ofcom.org.uk

The Department of Trade and Industry (DTI)DTI promotes enterprise, innovation and creativity for individuals and companies in the UK. http://www.dti.gov.uk



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Comparative Company Data | EUROPE

Notes to Comparative Data

- All figures are in United States dollars.

- All figures are as reported by the company.- N/A = Data Not Available.

- N/L = Not Listed.

- Companies ranked by total revenue for the full year most recently reported.Definitions- Total Revenue = All revenues, including net sales, operating revenues, interest income, royalties, excise taxes etc.

- EBITDA = Earnings before interest, taxes, depreciation and amortization.

- EPS Cont Operations = Earnings Per Share as reported by company excluding extraordinary items.

- Total Current Assets = All assets expected to be realized within the next year, includes cash, accounts receivable and inventories.

- Long Term Debt = Debt due to be paid at a date more than one year in the future.

- Return on Equity = The company’s earnings divided by its equity (book value).

- Profit Margin = The company’s net income as a percent of revenues.

Company Country Ticker Exchange Primary SIC Other SICs

Deutsche Telekom AG Germany DTE FSE 4812 4813 4822 4841 4899

Telefonica SA Spain TEF MAD 4813 3661

Vodafone Group Plc United Kingdom VOD LSE 3661 4899

France Telecom SA France FTE PAR 4813 4812 3661 3663 3357

Telecom Italia SpA Italy TME ITL 4812 3663

BT Group Plc United Kingdom BT.A LSE 4899 3669 4813 7373

Alcatel-Lucent France CGE PAR 4812 7372 3669 3663

WPP Plc United Kingdom WPP LSE 7311 8743 7319 8742 6719

Teliasonera AB Sweden TLSN SE 4813 1731 4841

SwissCom AG Switzerland SCMN Virt-X 4813 4812

Company Total Revenue - FYE - 1 Total Revenue - FYE - 2 Total Revenue - FYE - 3 EBITDA - FYE - 1 EBITDA - FYE - 2 EBITDA - FYE - 3

Deutsche Telekom AG $95,051,659,677 $88,124,485,610 $93,405,185,732 $27,486,066,907 $24,189,774,242 $24,314,809,192

Telefonica SA $84,094,687,723 $83,621,233,799 $89,331,870,242 $27,797,229,928 $28,132,391,475 $29,402,038,834

Vodafone Group Plc $67,617,690,481 $58,677,040,807 $70,328,879,941 $17,959,195,502 $9,887,990,493 $23,874,125,281

France Telecom SA $67,025,379,191 $67,238,400,915 $69,534,791,741 $21,546,598,675 $24,939,151,135 $27,755,348,071

Telecom Italia SpA $40,278,324,461 $41,721,838,107 $45,190,551,079 $12,710,145,090 $11,892,163,895 $14,056,470,217

BT Group Plc $32,093,607,095 $31,028,720,167 $41,687,468,384 $6,054,138,528 $3,677,954,797 $9,673,444,812

Alcatel-Lucent $21,834,712,584 $23,745,181,235 $26,182,235,983 $757,739,580 -$5,167,345,139 -$3,690,706,376

WPP Plc $14,064,925,373 $10,896,094,536 $12,392,458,908 $1,664,767,084 $1,492,422,049 $1,873,322,932

Teliasonera AB $13,360,433,146 $15,236,757,320 $13,453,669,926 $4,019,270,040 $4,769,587,131 $4,563,402,889

SwissCom AG $12,053,446,156 $11,893,925,867 $10,237,350,260 $4,203,900,270 $4,043,295,539 $3,974,082,497

Company Net Income - FYE - 1 Net Income - FYE - 2 Net Income - FYE - 3 EPS - FYE - 1 EPS - FYE - 2 EPS - FYE - 3

Deutsche Telekom AG $508,521,049 $2,073,369,275 $840,268,477 $0.12 $0.48 $0.19

Telefonica SA $11,201,868,777 $10,614,308,522 $13,105,833,727 $2.46 $2.28 $2.75

Vodafone Group Plc $13,110,728,350 $4,403,245,766 $13,212,703,538 $0.25 $0.08 $0.25

France Telecom SA $4,317,386,925 $5,688,833,163 $9,270,913,146 $1.64 $2.17 $3.58

Telecom Italia SpA $2,277,540,450 $3,043,644,580 $3,462,612,481 $0.12 $0.15 $0.18

BT Group Plc $1,559,031,665 -$276,096,957 $3,446,015,923 $0.20 -$0.04 $0.43

Alcatel-Lucent -$754,858,441 -$7,291,045,698 -$5,176,995,627 -$0.33 -$3.23 -$2.30

WPP Plc $708,890,508 $639,900,910 $933,355,956 $0.58 $0.56 $0.79

Teliasonera AB $2,434,303,187 $2,756,537,816 $2,478,768,423 $0.54 $0.61 $0.55

SwissCom AG $1,871,852,130 $1,650,785,158 $1,837,746,557 $36.14 $31.87 $35.48

CompanyTotal Current Assets -

FYE - 1

Total Current Assets -

FYE - 2

Total Current Assets -

FYE - 3

Long-Term Debt -

FYE - 1

Long-Term Debt -

FYE - 2

Long-Term Debt -

FYE - 3

Deutsche Telekom AG $33,150,386,355 $21,573,945,575 $23,317,082,349 $60,215,806,955 $51,743,355,953 $50,831,092,363

Telefonica SA $34,328,772,243 $25,127,893,449 $27,191,735,414 $68,581,194,299 $63,037,136,807 $69,078,603,952

Vodafone Group Plc $21,564,077,086 $18,638,690,413 $17,307,451,301 $43,422,368,318 $45,418,664,665 $44,958,902,037

France Telecom SA $19,724,278,202 $21,902,497,011 $22,213,402,212 $45,353,450,966 $45,126,190,222 $48,099,851,919

Telecom Italia SpA $25,473,591,253 $20,542,154,256 $24,629,725,924 $52,943,811,895 $51,068,077,895 $54,523,270,313

BT Group Plc $9,531,628,419 $8,478,894,626 $12,929,007,351 $14,440,758,282 $17,688,802,437 $19,477,826,326

Alcatel-Lucent $17,580,710,720 $20,368,790,945 $20,153,199,291 $6,020,140,126 $5,589,568,687 $6,717,733,097

WPP Plc $15,540,363,464 $16,187,117,612 $17,152,794,649 $5,808,464,512 $5,828,184,258 $3,485,811,038

Teliasonera AB $5,004,080,193 $4,921,029,828 $5,134,831,461 $6,937,335,125 $6,399,272,751 $3,547,497,446

SwissCom AG $4,033,025,802 $4,232,252,154 $4,129,597,800 $8,365,081,924 $9,428,089,039 N/A

Company Return on Equity (Most Recent Yr) Profit Margin (Most Recent Yr) Date FYE - 1 Date FYE - 2 Date FYE - 3

Deutsche Telekom AG 0.97 0.53 31-Dec-2009 31-Dec-2008 31-Dec-2007

Telefonica SA 35.78 13.32 31-Dec-2009 31-Dec-2008 31-Dec-2007

Vodafone Group Plc 9.57 19.39 31-Mar-2010 31-Mar-2009 31-Mar-2008

France Telecom SA 11.52 6.44 31-Dec-2009 31-Dec-2008 31-Dec-2007

Telecom Italia SpA 6.09 5.65 31-Dec-2009 31-Dec-2008 31-Dec-2007

BT Group Plc -38.79 4.86 31-Mar-2010 31-Mar-2009 31-Mar-2008

Alcatel-Lucent -14.01 -3.46 31-Dec-2009 31-Dec-2008 31-Dec-2007

WPP Plc 7.43 5.04 31-Dec-2009 31-Dec-2008 31-Dec-2007

Teliasonera AB 14.58 18.22 31-Dec-2008 31-Dec-2007 31-Dec-2006

SwissCom AG 30.08 15.53 31-Dec-2009 31-Dec-2008 31-Dec-2007



32

Notes



33

Notes



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